Private markets are no longer the exclusive preserve of large institutional investors. A round of questions to Dutch asset managers points to an influx of families and high-net-worth individuals - or HNWIs - as private equity becomes more widely available as an asset class. Their increased appetite for alternative investments is also noted in Luxembourg.
The trend in the Netherlands appears to match a similar development in Luxembourg. Together with a growing number of institutional investors, family offices and HNWIs are among the investors with the most appetite for the asset class, said the Luxembourg Private Equity Association, or LPEA, which hosts an event on this topic next month. Luxembourg also is recognised as an attractive jurisdiction for private equity because of its conducive legal environment. Reserved Alternative Investment Funds, or Raifs, and unregulated Special Limited Partnerships, known as SCSps, account for about half of the Grand Duchy’s private equity market.
LPEA CEO Stephane Pesch told Investment Officer that family offices recognize the benefits of private equity because of its resilient performance, diversification benefits, lower exposure to market fluctuations, among others.
“PE is broad and offers many market strategies and exposures to different geographies which helps to mitigate risks and allow a deeper diversification,” Pesch said.
In the Netherlands, wealthy families are moving out of standard products and into private markets, noted Niels Govers (photo), partner at PwC. Families are looking beyond the offerings of banks’. In his role as partner family business, Govers has daily contact with representatives of single family offices. In his experience, families are increasingly opting for a direct route. So: investing directly in a company or investing together with other families via a feeder in a private equity fund.
Rapid growth
But the route via an asset manager is also being taken more often, notes IBS Capital Allies and WMP, both of which offer more than ten feeder funds and pooled private equity funds. These funds invest in one or more managers who step directly into private equity. WMP in any case focuses only on very wealthy families, IBS not only notices more interest from wealthy relations, but also from family offices.
At WMP, assets under management in the private offering have risen from 1 billion euro in committed capital last year to 1.4 billion euro now. It is growing slightly faster than the total, say partner Philippe Mol and director of private markets Olimpia den Hartogh (photo) of the asset manager with 3.7 billion euro in total assets under management. At IBS, the assets in private markets are heading for half a billion euros, of the total assets under management of 5 billion euros.
ABN Amro, which has been offering private market solutions to clients since 2019, is also seeing rapid growth. The “basket” of private equity funds that the bank has been offering since last year has been subscribed to by domestic and foreign customers to the tune of 125 million euro, a spokesperson said. A further 180 million euro has been raised for a feeder launched this year.
“Since the launch of PE Advice in the Netherlands in 2019, our PE clients in the Netherlands, Belgium, France and Germany have already subscribed more than 600 million euros in our PE funds,” said the ABN Amro spokesperson. “And we continue to see a growing number of investors per new issue in the Netherlands, Belgium and France in particular.”
New providers
The number of providers in private markets is growing, WMP and IBS note, as is the Dutch Association of Participation Companies (NVP). Head of research Felix Zwart (photo): “There are an increasing number of parties that offer a participation in private equity or venture capital through a fund-in-fund solution. In addition, we are seeing many new parties enter the market.”
“We are no longer the only one in this branch in the Netherlands, said Head of Private Markets Koen Ronda (photo) of IBS Capital Allies, referring to the year 2013, when IBS started it. “We also see strong growth in debt and infrastructure, but the fund of funds we build around private equity are always the biggest. That category is the most exciting to add to your portfolio as a satellite, the return expectation the highest.”
Investments in Dutch private equity are therefore increasing. The NVP reported an invested amount of over 8 billion euro for 2021 through private equity and venture capital, where ten years ago this was still over EUR 3 billion. Govers of PwC has noticed that an increasing number of family businesses are opening up to PE, mainly because of business succession issues. “The worlds are converging. A good development: family businesses and private equity firms can strengthen each other.”
More high-net-worth individuals
These investments are increasingly being made by high-net-worth individuals and family offices, according to Zwart of the NVP. “These may be successful entrepreneurs who have sold their businesses, but they are also increasingly so-called serial entrepreneurs who make investments. The latter we see happening especially in venture capital, young fast-growing companies.”
Clavis from Den Bosch has been actively investing for clients in private equity since 2010, but has noticed an acceleration in the attention paid to private markets. The number of clients and the assets to be invested in this area are growing “particularly fast”, said Van Hastenberg (photo). The multi family office does not work with fund-of-funds but has a tailor-made strategy for all clients. “Raising a fund-of-funds is a substantially different role than ongoing relationship and portfolio responsibility,” said Van Hastenberg.
Entry threshold
Private investments seem more accessible. Yet Mol and Den Hartogh of WMP and Ronda of IBS dispute that the entry threshold has been lowered. Zwart of NVP also sees no sector-wide leniency in that regard. “Apart from a few exceptions. Legally, there is a minimum entry amount of 100,000 euros. Below that, the regulations of the AFM for retail investors must be met. That creates an extra administrative burden.”
In addition, private investments remain risky and for the long term, say all consulted sources. Zwart: “In many cases, money is tied up for ten years. You want to be sure that an investor understands this and can cope financially. That is another reason why there is little movement towards lower entry thresholds. For retail investors, there is listed private equity. There are even ETFs in private equity available.”
Allocation of 20 percent
At IBS, about a third of clients are eligible for unlisted investments, he said. “We don’t just allocate to private markets for all our clients. It has to be right for you, and your assets have to be big enough. If that’s the case, then we think a 15 percent allocation in unlisted is a good percentage.”
“For private markets, you are talking about clients who need to have about 20 million euros of investable assets,” calculates Mol (photo) of WMP. “If you want to allocate 20 percent, you obviously don’t do that in one strategy, but soon in two or three. Hence our lower limit of 2 million euros.”
Just like Ronda, he and Den Hartogh also think an allocation of around 20 percent is justified, provided a client is reasonably risk-bearing and has sufficient additional capital, they said. “Our clients are large, wealthy families; they are often not dependent on their assets for their income, so allocating to these strategies can be a nice supplement. Incidentally, the majority of our clients have not yet reached 20 percent by a long shot,” said Mol.
The great flight into private markets may increase even further, certainly with the fact that the number of single family offices is on the rise. In the Netherlands, but also abroad. There is a lot of money in the market’, argues Niels Govers of PwC. And families increasingly feel the need to set up their own professional organisation. It’s a fashionable thing to do, certainly in Asia. If you are wealthy there and you don’t have a family office, the question is whether you are really that wealthy.
In addition, the category is simply extra attractive now that the returns on the public markets are so disappointing. Or as ABN Amro puts it: ‘Private markets are increasingly an important addition to investment portfolios.’
Data has yet to confirmed the trend
In Luxembourg, the LPEA has planned an event dedicated to family officers and HNWIs in private equity for 13 June.
LPEA CEO Pesch said the sector considers family offices as “very important and essential” partners because of their long-term investment horizon and result-driven approach to capital, while Luxembourg is well placed to meet their “sophisticated needs”.
Still, the 2021 LPEA private equity survey showed that institutional investors are responsible for the biggest share of private equity investments in Luxembourg. Investments of 5 billion euro and more accounted for 49 percent of the total, compared to 41 percent in the 2016 and 2018 surveys.
“We observed a significant increase in the population of funds above 5 billion euro, evidencing the trend of Luxembourg becoming a reference jurisdiction for large managers,” LPEA said in November. “On the other hand the proportion of mid-sized funds between 100 million euro and 500 million decreased significantly amongst the Luxembourg PE fund population.”
This article was originally published in Dutch on InvestmentOfficer.nl.
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